Richard Elman intends to relinquish his position of executive chairman
Noble Group, the beleaguered commodities trader, on Friday announced its founder would step down as chairman within a year as it also unveiled plans for a $500m rights issue to cut its debt load.
Richard Elman intends to relinquish his position of executive chairman, and this follows Noble’s announcement on Monday that Yusuf Alireza was resigning as chief executive.
Hong Kong-based Noble slumped to its first net loss in almost 20 years last year, as the commodities crash took its toll on the company. But Asia’s biggest commodities trader has also been contending with questions about its accounting since early last year, and credit rating agencies have cut Noble to junk status partly because of concerns about its ability to refinance its debts.
The proposed rights issue to raise net proceeds of $500m, which must be approved by shareholders, is deeply discounted.
Noble’s shares fell 13 per cent on Friday to S$0.260. The stock has fallen 64 per cent during the past year.
Singapore-listed Noble said in a statement that Mr Elman, a UK-born former scrap metal dealer who founded the company in 1986, “wishes to step down as executive chairman within the next 12 months”.
Noble outlined changes to its corporate governance, saying its next chairman would have non-executive status, and that it was adding another non-executive director to the board.
Mr Elman is Noble’s largest shareholder, with a 22.28 per cent stake, but is expected to be diluted in the rights issue.
He has committed to buying 9.6 per cent of the new shares being issued, and could buy more stock through a so-called tail swallow arrangement.
One analyst said this may indicate Mr Elman, 76, is constrained by lack of capital. Noble declined to comment on this, or explain why he had decided to step down as chairman. Mr Elman’s future role at Noble is unclear.
China Investment Corporation, the Chinese sovereign wealth fund that is Noble’s third-largest shareholder with a 9.65 per cent stake, has agreed to buy 9.6 per cent of the new shares. It will secure a second seat on Noble’s board.
Noble said proceeds from the rights issue would be partly used to repay debts falling due in 2017 and 2018. At March 31, Noble had net debt of $3.7bn.
Mr Elman said Noble had “moved firmly to re-position our balance sheet”, adding: “Combined with focusing our operations on our high return market leading franchises, we are confident we now have the profile and capital structure to enable us to best capture the opportunities we see going forward”.
Under new joint chief executives Will Randall and Jeff Frase, Noble intends to focus on trading in commodities including oil, gas and coal.
©Reuters
Yusuf Alireza, who has resigned as chief executive
Noble also said on Friday it was planning to cut headcount, sales, administration and operating expenses by more than 20 per cent during 2016.
On Monday, Noble announced plans to sell its electricity supply business in the US, called Noble Americas Energy Solutions.
This and other disposals, plus further measures, are intended to raise $1.5bn for Noble.
Under the proposed rights issue, one new share will be issued for every existing Noble share at a price of S$0.11 each, representing a 63 per cent discount to the company’s closing stock price on Thursday.
Noble has defended its accounting since February 2015, when Iceberg Research, a previously unknown research firm, started to highlight how the company had reported much higher net profits over the past five years than it had generated cash.
Analysts welcomed Mr Elman’s decision to step down, noting his age and sometimes combative style.
Bernard Aw, analyst at IG, said: “A lot of detractors say that he is not being transparent about the company. By stepping down, he gives a signal that he is really concerned about its future.”
Analysts also suggested that Chinese investors were likely to take an interest in Noble’s rights issue, as China is the biggest user of the commodities that the company supplies.
Margaret Yang, analyst at CMC Markets, welcomed Noble’s decision to tap equity markets.
“Previously, the management has borrowed new debt to repay old, and sold core businesses,” she said. “Raising money from the equity markets to strengthen the balance sheet should support future growth and may turn the company round.”
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Few saw the rise of Asia as a manufacturing and trading powerhouse as clearly as Richard Elman, who founded Hong Kong-based Noble Group in 1986. Through the 1990s and 2000s Asia was booming, and Mr Elman became a billionaire on the back of the prosperity being generated. When Sir Jimmy Goldsmith bought a stake in Noble in 1994, the buccaneering financier and industrialist originally assumed the commodities trader was a subsidiary of one of China’s state enterprises, given how many vessels bearing the company’s name steamed in and out of Chinese ports. Staff at Mitsui and other Japanese trading firms found their only competition in carrying iron to their country from India for final processing was Noble. Mr Elman diversified Noble, from metals and then energy into agricultural commodities, and turned the company into a global as well as a regional player. But as Noble grew larger, it did not become stronger. Risk management was never properly centralised and remained weak, according to former executives at the company. And lack of transparent accounting made Noble’s shares vulnerable to short sellers. Under Mr Elman’s hand, Noble failed to anticipate slowing demand for commodities in China in recent years. He also brought in executives and then turned on them, including Ricardo Leiman, former chief executive, and Toby Brown, former chairman. Some of these executives left on bad terms, including Mr Leiman, who sued Noble. Now shareholders appear to have turned on Mr Elman, driving down Noble’s stock by 64 per cent over the past year. He will step down as Noble’s executive chairman within a year. Henny Sender in Hong Kong |
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